With the Nasdaq Composite and related exchange traded fund partying like its the year 2000, bubble fears are brewing. However, the benchmark is strengthening on better company fundamentals this time around.
The Nasdaq Composite sightly retreated Monday after closing at an all-time-high of 5,092 Friday, breaking above its previous record before the dot.com bubble busted in 2000. The PowerShares QQQ (NasdaqGM: QQQ), which tracks the Nasdaq-100, is also trading around a 15-year high after rising 7.3% year-to-date. [Five Reasons Why the Nasdaq 5,000 is Different This Time]
Scott Nolan, the Founders Fund partner, argued that skittish investors should not be wary about the new records this time around, especially when you factor in inflation, reports Tom DiChristopher for CNBC.
“We’ve had about 40 percent inflation since 2000, so when people are comparing Nasdaq to that, it would have to be 40 percent higher just to keep up with inflation,” Nolan said on CNBC.
Nasdaq companies are also trading at more realistic valuations, with a price-to-earnings ratio just under 25, or six times less than the index’s P/E ratio of over 150 back at the start of the millennium. Meanwhile, QQQ is trading at a 20.1 P/E and a 3.9 price-to-book.
Moreover, chart watchers may see that the Nasdaq could be breaking out after a period of consolidations, reports Amanda Diaz for CNBC.
“If you look at a chart, you can see that the Nasdaq has been stuck in a consolidation phase that started in early March,” technical analyst Todd Gordon of TradingAnalysis.com said on CNBC. “This is very similar to what we saw in December through February.”
Gordon points out that the last consolidation phase ended in a sharp jump in the Nasdaq. Looking ahead, investors can expect a similar move higher by taking the lenght of the previous breakout and adding it to the current price. Consequently, the technical trader expects upside in the Nasdaq of up to 5,120 over the short-term and 5,300 in the long-term.
ETF traders who would like to capitalize on short-term moves can utilize leveraged ETFs to generate returns. However, potential investors should be aware that the potentially greater returns come with greater risks. For instance, the Ultra QQQ ProShares (NYSEArca: QLD) takes the double or +200% daily performance of the Nasdaq-100 and the ProShares UltraPro QQQ (NasdaqGM: TQQQ) mirrors the triple or +300% daily performance of the Nasdaq-100. [Growth ETFs Continue to Outperform]
PowerShares QQQ
For more information on the Nasdaq, visit our Nasdaq category.
Max Chen contributed to this article.